FINANCIAL ACCOUNTING

Dingleberry operates a chain of 200 convenience stores. Dingleberry wants to install automated frozen yogurt dispensing equipment in its stores. Customers would get premeasured amounts of yogurt after prepaying the cashier or swiping their credit cards and entering the amount of their purchases on a keypad.

FroMacCo [FMC] designs, manufactures and sells the necessary equipment for automated food dispensing and accounting. With modifications, FMCs equipment can be tailored for Dingleberrys business.

Dingleberry engages FMC to develop the dispensing and accounting equipment to meet its needs. Dingleberry agrees to pay FMC $1,400,000 to develop and install the equipment and train Dingleberrys staff, which is based on FMCs standard pricing for such engagements. Title transfers to Dingleberry upon installation of the equipment and acceptance by Dingleberry. [For simplicity, assume that installation in all stores occurs simultaneously].

FMC will also provide tech support for two years. The terms include a payment of $600,000 on contract signing [non-refundable] and $200,000 when training of Dingleberry staff is completed [one month before installation], and $600,000 when the system is installed.

FMC usually charges $1,200,000 for the equipment, $200,000 for training [which is not sold separately] and $600,000 for two years of tech support.